FHA Approved Homes
Buying a home using an FHA insured loan can bring great benefits. These benefits extend to those who are selling a home because more borrowers can qualify due to the ability to qualify. A very large portion of the home buyers in the market will likely use an FHA loan. For both buyers and sellers, it is important to have a full understanding as to what makes a home FHA approved or eligible.
When the FHA (Federal Housing Administration) discusses FHA approved homes in the 4000.1 section of the HUD guidelines, they often refer to MPS. MPS is the Minimum Property Standards used for new construction.
What are FHA Approved Homes?
FHA approved homes are those that have met all of the criteria set forth within the HUD guidelines for safety, overall condition of the home, and other factors needed to secure FHA insured financing.
HUD has set eligibility standards for homes financed using an FHA insured loan. In general, an FHA eligible home must meet the following criteria:
- The home must be safe and free from hazards
- The home cannot be in disrepair or have defective conditions
- The zoning must be residential
- There must be adequate vehicular access to the property
Why does the FHA have home eligibility standards?
The FHA is insuring the loan against default not only due to default, but also against the loss of value in the home due to sub-standard construction and conditions. With the down payment requirement set at only 3.5%, any serious construction error or adverse condition could result in a situation where the home value is less than the loan amount.
30 Reasons why a Home Does Not Meet FHA Eligibility
- Lead Paint – There should be no lead paint in the home. Lead paint has not been used in decades. If you have an older home, you should have it checked for lead paint and then get it removed professionally.
- Evidence of Mold – Mold can be extremely dangerous and must be removed from the home. Homes with mold will not pass inspection regardless as to whether the loan used is FHA
- Termites – If the home has termites, it must be dealt with professionally. Termites can ruin the structural integrity of an FHA approved homes must be free from termites even if there is some prior termite damage. If you are buying or selling a home with termites, make sure you get a certificate of protection.
- Asbestos and Other Hazardous Materials – Asbestos can be found in many older homes. It was used for many different types of building materials years ago. Homes that still contain asbestos may need to have it removed professionally.
- Failing Septic System – Septic systems are expensive to replace and must be functioning during the sale of an FHA funded home.
- Inadequate Bathrooms – Each bathroom must include a toilet and a sink and there must be at least one shower in the home.
- No Access to Reliable Drinking Water – There must be access to drinking water and that water must also be safe to drink. The home must also have reliable hot water.
- Missing or Broken Handrails – This one is obvious and easy to fix. If you are selling a home you should fix all handrails before inspection.
- Broken Stairs – If you have any staircase inside or outside of the home, they all must be fully functional and not in disrepair.
- Poor Roof Conditions – If the roof is leaking, is severely damaged or has three layers, it will need to be repaired or replaced before the house can be considered an FHA approved home.
- Failing Electrical Systems – This includes any exposed wiring at any outlet or at the panel.
- Plumbing Leaks – The plumbing systems must be in full working order with no leaks.
- Bedrooms that Do Not Meet Standards – Every bedroom must have a way to escape externally in the event of a fire either via a door or window. They also must have the ability to be entered via a standard door.
- Broken Windows and Doors – All windows and doors must be repaired and working properly.
- Failing or Unsafe Heating System – Every home must have adequate and safe heating systems.
- Foundation Problems – FHA approved homes must have foundations that are stable and pass inspection. Cracks are ok if they are minor and are dealt with effectively.
- Poor or Defective Construction – The home must be constructed to code and not have visible signs of defect or poor quality.
- Water in Basement – Basements need to be free from leaks
- Inaccessible Crawl Spaces – Crawl spaces must have the ability to be accessed, be free of debris and standing water.
- Floors in Disrepair – Floors much be finished, wood floors cannot be warped and carpet must be in livable condition.
- Kitchen Appliances – Every home must be sold with a stove and any appliances that are sold with the home must be in working order.
- Proximity to Hazardous Waste – If the home is adjacent to, or nearby a hazardous waste area, gas pipeline, or oil well, then the home may not be FHA eligible.
- Proximity to Power Lines – If the home is too close to power lines, then it may not be an FHA approved home.
- Proximity to an Airport or Traffic – The home should not be too close to an airport (flight path) or alongside busy traffic such as a highway.
- Swimming Pools in Disrepair – If the pool does not have a pump that works or a torn liner, then the home may not be FHA approved. The pool also must be secured by a fence according to local code requirements.
- Tripping Hazards – The exterior of the home shall not have any tripping hazards. This refers to permanent structures or large objects that can result in a trip and fall. A bicycle left on the walkway does not constitute a tripping hazard.
- Inadequate Walkway or Driveway – Every home must have an adequate walkway or driveway. Likely paved or crushed stone.
- Access to front Door – The front door of the home must be accessed easily without having to pass through a separate living area.
- No Certificate of Occupancy – Every home must have a certificate of occupancy before it can be funded with an FHA loan. This applies to new construction as well as older homes that are in disrepair.
- Broken Fences – If there is a fence around the home, it must not be in disrepair. It is better to have no fence than a broken fence.
These are the most common reasons why a home may not be approved for an FHA loan. You can figure out which are the most important. Some can easily be repaired over the weekend. Other things you likely will have no control over such as whether the home is located too close to an airport or electrical wires.
Whether you are thinking about selling a home now or in the future, carefully consider these potential issues above because they will likely become an issue regardless as to whether the potential buyer will use an FHA loan to finance the property.
FHA Appraisal by a HUD Approved Appraiser
Each home must be appraised by a HUD approved FHA appraiser not only to verify that the home meets the criteria referenced above, but also to make sure the home value is equal to or greater than the purchase price.
It is important to note that once an FHA appraisal is done on a home, that appraisal will remain in effect for that home for the next four months.
Additional instructions provided to the appraisers are as follows: “Every property must be safe, sound, and secure so that the Mortgagee can determine eligibility. The Appraiser must note every instance where the property is not safe, sound and secure and does not comply with the FHA’s MPS”.
Read our article on FHA inspection and appraisal guidelines which will help you to understand what to expect if you are buying or selling a home with an FHA loan.
The Home Loan Amount Cannot Exceed the FHA Loan Limits
There are established loan limits for every county in the US which limit the amount an FHA insured loan in that area. These limits vary by county and will likely be higher in areas where real estate values are also higher.
If you are planning to use an FHA loan to finance your new home, then be sure to lookup what the maximum loan amount is in the county where you are doing your home shopping. The limits are higher for 2 family, 3 family, and 4 family homes.
If the home is priced much higher than the FHA loan limit in the area, then an FHA loan can still be used but the borrower must add down payment money to make up the difference between the purchase price and the maximum FHA loan amount.
FHA Approved Homes Must Have Independent Utilities
Each FHA eligible home must be on its own utilities without relying on or tapping into the utilities from a neighboring home.
FHA Approved Homes Must be Zoned Residential
The home must be considered residential and a minimum of 51% of the total floor area must be used for residential purposes. An example of where this could come into question is on a property where the homeowner may also have a business on the property.
Any non-residential use of the property must be secondary to its residential use in both character and appearance. So, if you operate nail salon in your basement, then it must first look like a home from the outside and not a nail salon.
The appraiser will verify that the home meets local zoning requirements. If the home does not comply and has non-conforming use, he must verify whether local codes will permit the home to be rebuilt in the event of a disaster.
Easements and Deed Restrictions
Some homes have easements or deed restrictions. The appraiser will need to verify there are no easements or deed restrictions which can negatively impact the home value, future use, or ability to resell.
Other External Factors
There may be other factors which can disqualify a home from being approved for an FHA loan. Some of these external factors are as follows:
- Heavy Traffic
- Airport noise or hazards
- High pressure gas lines nearby
- Overhead electrical power lines
- Factories which produce smoke, fumes or noxious odors
- Stationary storage tanks
These things are not on the property but may prevent you from buying your home with an FHA loan. If you do not plan to use an FHA loan for your purchase, these are still concerning issues and may limit your ability to sell the home again in the future.
Access to Property
FHA approved homes have all weather road surfaces which will allow access for emergency vehicles at all times. If the loan is insured by the FHA, then it is mandatory that a fire truck can get to the home.
Shared driveways are also taken in to consideration by the appraiser before final approval.
FHA Approved Homes Summary
Regardless as to whether you are buying or selling an FHA approved home, you should carefully consider all of the potential issues referenced above. If you are thinking of selling your home, then go through the checklist to make sure your home will likely pass the inspection.
If you are thinking about buying an FHA approved home, then keep this checklist with you when you are searching for homes. This will help you to view the homes with a different lens.
How to Make Your House FHA Mortgage Eligible – By Bill Gassett
Should You Get an FHA Loan When Purchasing a Home? – By Kevin Vitali
5 FHA Mortgage Quirks Every Home Buyer Should Know – By Anita Clark